Will Johnson & Johnson’s New Innovation Centers Point The Way Toward Its Future?

To visit the southeastern quadrant of Cambridge, Massachusetts, these days is to witness the rise of a new kind of city—a glassy, gleaming pharmopolis dedicated to the discovery, development, and marketing of drugs. Pfizer, Biogen, Novartis, Sanofi, and Japan’s Takeda have all recently started or finished building expansive new facilities in the increasingly pricey neighborhood surrounding the MIT campus. They are flocking here to join the area’s already robust culture of academic research and startup activity, part of a broader movement in Big Pharma away from traditional suburban strongholds and into the kinds of integrated urban ecosystems where elite universities, not-for-profit institutes, top research hospitals, and health-care-savvy VCs fuel innovation.

A much-needed treatment for drug-resistant tuberculosis (originally discovered in 2002 by J&J laboratories) gets FDA approval. It’s the first new medication to fight TB in more than 40 years.

Compared to its competitors here, New Brunswick, New Jersey–based Johnson & Johnson has staked out a far more modest footprint. Its Boston Innovation Center, which opened last summer with a staff of about 20, occupies a single floor in a high-rise building across from the Kendall Square T station. But as the world’s biggest health-care company—with more than 250 component businesses and 2012 revenues of more than $67 billion from pharmaceuticals, medical devices, and consumer products—J&J’s mere presence in Cambridge has caught people’s attention. It’s an implicit acknowledgment that no company can go it alone anymore when it comes to maintaining a profitable pipeline of new products.

The Boston Innovation Center is one of three such outposts that J&J opened in 2013 (the other two are in Silicon Valley and London), and a Shanghai center is coming this year. All will be focused on identifying promising science and technology at an early stage and developing mutually beneficial collaborations with local academics, entrepreneurs, and emerging companies. "In pharmaceuticals, the challenge is how to innovate at scale to continuously bring new products and new solutions for diseases," says Paul Stoffels, the worldwide chairman of pharmaceuticals for J&J’s Janssen division, who played a leading role in creating the innovation centers. "The objective is to access a diversity of thinking that can be very difficult to get in a large organization. We can tap into work that’s been going on for many years here in academic and research settings, and find the science to solve problems in the shortest possible time."

While J&J was the second-most-profitable pharmaceutical company in 2012 (just behind Pfizer), the entire industry is suffering as patent protections for many best-selling drugs are expiring. Finding replacements for these blockbusters hasn’t been easy. "Our strategic focus is on major problems in society—things like cancer, Alzheimer’s, depression, and drug-resistant bugs and viruses," says Stoffels, who spent his early career working as a physician and researcher on HIV and AIDS in Africa. "Where can we find the best solutions?"

Part venture firm, part incubator, each center has a team that mixes scientists with businesspeople. By design, about half of the employees at the Boston center are new to J&J, coming from large companies, VC firms, and academia. People from inside J&J, meanwhile, bring insight into the regulatory process, drug safety, manufacturing, and marketing.

"Our strategic focus is on major problems in society," says J&J’s Paul Stoffels. "Things like cancer, Alzheimer’s, depression, and drug-resistant bugs and viruses."

In Cambridge, J&J is also helping sponsor a new coworking space for startup science companies, called Lab Central. Stocked with millions of dollars in state-of-the-art equipment, the 28,000-square-foot lab occupies the building where Edwin Land launched Polaroid and Alexander Graham Bell made the first two-way long-distance call. J&J will have a permanent office in the lab, and innovation-center staff will hold office hours, giving researchers a chance to drop in to discuss their work (and J&J a chance to spot promising research). "J&J coming here is a big story now," says Johannes Fruehauf, founder and executive director of Lab Central. "For decades, they haven’t played in Boston; it’s an overdue stamp of approval. They can’t be in New Jersey and innovate their way out of the patent situation anymore."

The Boston center has already funded two startups: Rodin, which is developing a drug that could prolong normal cognitive function in Alzheimer’s patients, and Vedanta, which aims to use a cocktail of bacterial strains to treat autoimmune disorders. But the innovation center’s support goes beyond finance. J&J manufacturing experts are helping Vedanta examine ways of producing what would be a whole new class of drug for clinical testing. And J&J has provided Rodin with a proprietary library of druglike chemical compounds to speed its R&D work. The partnership is unique, says Rodin’s chief scientific officer, Marty Jefson, because "they’re invested in the company, but are also scientists and neuroscientists who can contribute with respect to ideas and tangible resources while respecting our autonomy."

J&J’s innovation centers won’t just focus on drug development; they’ll also feed into the consumer and medical device and diagnostics businesses, which contributed $27.4 billion and $14.4 billion, respectively, to 2012 revenues. On J&J’s consumer side (which includes brands such as Band-Aid, Lactaid, Listerine, Lubriderm, and Tylenol), the company sees opportunities for innovation in areas such as skin care, nutritional supplements, and oral hygiene.

It can take years to bring a new drug to market; this is no business for dabblers. But J&J’s commitment to outsourcing innovation is no passing fad, says Stoffels. "We’re stepping in with both feet and will make this work because it’s the best way, in my mind—and many other people’s minds—to bring the best products to market first. Ultimately, we have one goal: bringing new products to patients with very serious diseases. That’s fantastic motivation."

[Illustrations by Dale Edwin Murray]

A version of this article appeared in the March 2014 issue of Fast Company magazine.